The present invention relates to a method of placing tax stamps on individual packs of cigarettes housed in a cigarette carton. More particularly, the present invention relates to a method for not only placing numbered and coded tax stamps on each pack of cigarettes in a cigarette carton, but also a system whereby the cartons themselves can be easily validated and inspected as to whether they contain taxed cigarette packs without the cartons being opened. Additionally, the present invention provides the taxing authorities with a heretofore unavailable audit trail. Accordingly, the present invention provides a novel and unique method for placing tax stamps upon individual packs of cigarettes contained in a carton so as to deter cigarette smuggling and the production of counterfeit tax stamps.
According to recent estimates, the sale of cigarettes by the carton (as opposed to individual cigarette packs) amounts to approximately 65% of the total cigarette sales in this country. The individual cigarettes are first manufactured, enclosed into packs of twenty cigarettes per pack and, thereafter, ten packs are placed into a carton in two even rows of five. The carton comprises top and bottom flaps which are lightly spot-glued in two places and, according to conventional practices, sixty cartons are thereafter placed into a cardboard shipping case. The manufacturer presently pays an eight cent per pack federal excise tax. This federal excise tax is determined upon the weight of tobacco, and cross-checked with invoices for accuracy. It is not, however, based upon tax stamps or any other inventoried tax indicia.
From the point of manufacture, the cigarettes are shipped to regional warehouses. Individual wholesalers, authorized by their respective states to affix tax indicia, and authorized by the tobacco companies to "buy direct" then draw directly from these regional warehouses. There are, of course, certain exceptions such as ship stores, export and overseas military PX cigarettes which are shipped in bond from the manufacturer to a port of embarkation. It should be particularly noted that when the cigarettes arrive at the regional warehouses from the manufacturer, the individual packs of cigarettes do not reflect any state or municipal tax indicia.
From the regional warehouses, the cigarettes are transferred to wholesale stamping agents. The stamping agents take title to the cigarettes, affix the tax stamp which they have purchased from the appropriate finance or revenue department of the appropriate state, and resell the taxed cigarettes to sub-distributors, such as vending machine owners, stores and the like. If cigarette cartons are stolen and distributed prior to receiving the tax stamps, a significant reduction in price could be effected by virtue of the cigarettes not bearing a valid tax stamp since the thief would not have paid the appropriate tax thereon. Accordingly, there is, in the case of cigarettes, an incentive for counterfeiting tax stamps, or smuggling untaxed or low taxed cigarettes into a jurisdiction whereby they are sold at a greatly reduced cost and at a substantial profit to the illegal smuggler and/or counterfeiter whose costs are less than those of legitimate retailers who sell cartons on which the appropriate tax has been paid. Presently, this difference can be as much as $2.20 per carton. This is especially true since the effective demise of the Federal Bureau of Alcohol, Tobacco and Firearms (which had interstate enforcement powers) which means there now exists greater temptation and incentive, resulting in a higher incidence of hijacking and interstate smuggling.
Different states, of course, operate the collection of their tax revenues on cigarettes in different manners. For example, in the states of Michigan and Hawaii, no tax indicia presently appears on the cigarette packs as the tax is collected from the wholesaler based upon bills of lading, invoices or other records. Some states use a decal system for tax accounting purposes. This system is typically called the "decalcomania method". According to this prior method, a decal is essentially silk-screened onto clear plastic which is transferred to the bottom of the cigarette pack either by heat or by water. However, decals can be counterfeited rather easily and therefore their purpose as an accounting method for cigarette taxes can and has been circumvented.
A third method of tax accounting presently in use is a metering machine manufactured by Pitney Bowes. The Pitney Bowes machine offers the taxing authorities a distinct advantage since there are very small usage costs. The machines, much like postage meters, place indicia in the form of ink directly upon the cigarette packs. Accordingly, the only product cost of the indicia itself is the cost of the ink which is minimal. This conventional method is extremely easy to counterfeit.
According to the present invention, a method is provided which is superior to such prior methods and, moreover, enables not only the individual cigarette packs to have tax stamps placed thereon, but also provides a means by which the carton itself can be visually inspected so as to determine at a glance whether the packs therein have been taxed without resort to opening the cartons. Accordingly, the present invention offers a distinct advantage wherein tax inspectors can visually determine whether the individual packs in a given container have properly taxed cigarette packs therein.
A second unique and major advantage of the present invention, in addition to other attributes which will become clear after detailed consideration is given to the disclosure herein, will be that the tax stamps can be computer imprinted so that each pack and carton of cigarettes will contain certain unique information e.g. serial number, date, wholesaler's name or code, etc. Thus, for the first time, the taxing authority can have a complete audit trail.
Basically, there are two methods for printing the actual stamps. The unique method of intaglio may be utilized to provide a secure document or, in a preferred mode, the use of proprietary inks may be utilized which, when touched with predetermined chemical reagents, react by turning different colors. Both the intaglio and the special inks are, in and of themselves well known in the art. Each provides a far higher level of security than the methods currently being used.
One of the unique aspects of the present invention concerns the use of the printed tax stamps, whether printed by intaglio or lithography using proprietary inks or even at some future date without the anti-counterfeiting features which these provide, which are oriented on the web of paper so that they may be fed through a computer printer and each stamp be given a unique number and identification.
According to the present invention, either of the above methods may be advantageously utilized in conjunction therewith so as to provide the taxing inspector with a means of determining whether the cigarette cartons are legally taxed and whether the individual cigarettes packs in each carton have been legally taxed. Both of these determinations can be made without opening the carton itself.
According to the present invention, a sheet of tax stamps may be provided which, on one side, defines at least two rows and five columns thereby defining individual units, each of which bears tax indicia. On the other side of the sheet of tax stamps, there is preferably provided a heat sensitive adhesive for adhering the tax stamps to the individual packs of cigarettes.
The preferred method of covering the tax stamps with heat sensitive material is as follows. The raw paper out of which the stamp is created is coated at manufacture. The coating must be done in such a way as to make sure the adhesive, when applied, does not migrate through the paper and cause it to stick to itself when rolled or folded. The coated side of the paper receives ink better than the dull, more porous uncoated side. Therefore, virtually all adhesive coating on the commercial market is applied to the uncoated side of the paper allowing the paper to receive printing indicia more readily thereon. The preferred feature although not a limiting feature to the present invention, is to utilize paper for the tax stamps which has the adhesive coating applied to the "coated", protected side thereby providing a dull substrate which does not reflect light well and which permits ease of visibility to the practiced eye.
The units of tax stamps can then be separated two rows at a time and each of the columns can be separated without disturbing the spatial integrity of the columns and rows. Thereafter, the separated two rows and five columns of the tax stamps are transferred onto the bottom of the cigarette packs.
The appropriate tax indicia can be printed or otherwise provided by any suitable printing means. The most preferable, however, is to utilize a computer which serially generates identifying numerals for each pack of cigarettes. For example, when a computer is utilized, not only will each cigarette pack be serially identified by a unique number, but each carton of cigarettes can be supplied with a unique number and/or symbol which serves to identify the wholesale distributor who affixes the tax stamps. Moreover, the computer generation of unique numbers or symbols will permit an independent cross-check for the tax inspectors i.e. an accurate record of tax stamps purchased by wholesale distributors can be maintained to establish an "audit trail" for inspectors. Thus, it may be possible when utilizing the present invention to plant "trace" (e.g. specially marked) cartons of cigarettes in the distribution chain so as to establish the point at which such cartons illegally leave the chain. In such a manner, it may now be possible to accurately pinpoint potential geographical areas and/or distributors in which a high probability of cigarette tax fraud exists. Thus, by utilizing the present method, not only can illegal operators be more easily targeted, but once it is widely known that cigarette smuggling is a high risk crime, a certain deterrent to future crimes will be a beneficial corollary.
By taking advantage of the "audit trail" which the present invention encourages, an inspector can immediately determine a discrepancy in any jurisdiction e.g. New York City, as compared with one or more other jurisdictions, e.g. New York State or New Jersey. The name of the stamping agent, serial numbers or codes, etc., can alert the inspector to any cigarettes which are outside the normal channels of distribution. For example, assuming stamping Agent X does not normally sell in Brooklyn but normally sells in the Bronx, should any of Agent X's cigarettes be found in the Brooklyn retail market (e.g. in vending machines or stores), the inspector is automatically alerted to stolen cigarettes or other illegal activities in the area of stamping Agent X. This, of course, does not imply dishonesty or illegal activity on the part of stamping Agent X, but does indicate a starting point for investigators to determine the cause and perpetrators of such illegal activities. If Agent X had reported a theft, then the inspectors could confiscate the cigarettes so found in Brooklyn with certainty. No prior system can provide this certainty and ability to the inspectors.
An important feature of the present invention is the provision for each end unit of the two rows of tax stamps to have a portion which, when compared with the units intermediate to the end units, are a greater dimension in the longitudinal direction. Hereinafter, such portions will be identified as "carton validators" since, as will become more clear from the discussion below, such portions can enable tax inspectors to determine at a glance whether the carton contains properly taxed cigarette packs. The carton validators are adapted for being placed over the peripheral edge of the carton on each end thereof and for being securely adhered to the outside ends of the cigarette carton. In such a manner, should a tax inspector desire to determine whether the individual cigarette packs contain properly taxed cigarettes, he may make his inspection (e.g. either visually or with the use of special ink detectors applied to proprietary ink on the tax stamps) on the ends of the carton without opening the flaps thereof for a direct inspection. Accordingly, the present invention offers a much more rapid system for inspection purposes.
Thus, the present invention presents a deterrent to counterfeiting and smuggling of untaxed cigarettes since it will be more difficult for such smugglers to provide cigarette cartons with the exact tax indicia and proprietary ink necessary. Additionally, it will be much more difficult for cigarette smugglers to "hide" untaxed cigarettes behind properly taxed cigarettes out of the view of the inspector since the inspector can tell upon a quick glance whether the carton contains properly taxed cigarettes.
These and other advantages according to the present invention will become more apparent after detailed consideration is given to the description of the preferred exemplary embodiments thereof which follows.